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European Commission to fine-tune competition law rules for technology licences

On 20 February 2013, the European Commission launched a consultation on its proposals for a new block exemption regime for technology transfer agreements under competition law. The current regime, the technology transfer block exemption regulation (“TTBER”) and accompanying Guidelines, has governed such agreements since May 2004 but is due to expire on 30 April 2014. The Commission will adopt a new regime by this date and has proposed a draft revised TTBER and Guidelines which would fundamentally preserve the existing regime, albeit with some significant developments. Of particular importance are extensive additions to the Guidelines to clarify the Commission’s view of the potential anti-competitive effect of certain types of technology pool and settlement agreement.

Background to the current regime

Anti-competitive agreements are prohibited under Article 101(1) of the Treaty on the Functioning of the European Union (“TFEU”). The Commission is concerned (as before) with the possible stifling effect that some licences and agreements may have on competition: a powerful licensor could include anti-competitive terms in a licence, excluding competing technologies from the market; or two competitors may divide markets between them through a licence agreement.

“Technology transfer agreements”, as covered by this regime, are licences of patents, know-how, software copyright or any combination of those where the licensed technology is exploited for the production of goods or services. The TTBER allows for certain types of technology transfer agreement to be exempt from Article 101(1), where they satisfy exemption criteria in Article 101(3) and thereby fall within a ‘safe harbour’ that is automatically deemed to be compatible with EU competition laws. The Commission recognises that licences that allow the licensee to make use of the licensor’s technology for the production of goods or services usually improve efficiency and are pro-competitive, encouraging innovation and allowing companies access to complementary technologies.

The TTBER is supplemented by the Guidelines, which provide guidance on the application of the TTBER, as well as on the application of EU competition law to those technology transfer agreements that fall outside the ‘safe harbour’ of the TTBER.

In preparation for the expiry of the current regime in April 2014, the Commission is proposing a number of changes and updates to both the TTBER and the Guidelines.

The Proposals

Feedback from an initial public consultation in December 2011 revealed that the present regime is considered largely satisfactory, being a useful and important tool for industry. With this in mind, the Commission has not proposed radically altering the current regime; rather, the Commission has proposed a number of changes to the detail of the regime after respondents suggested “incremental improvements” to both the TTBER and the Guidelines.

Many of the changes relate to the scope and application of the rules and are not summarised in this article. The most significant are as follows

TTBER

A lower market share threshold of 20%, rather than 30%, will apply for certain licensing agreements between non-competitors. This will apply where the licensee owns a technology which it uses only for in house production and is substitutable for the licensed technology.

Passive sales restrictions between licensees will no longer be automatically covered by the new regime’s ‘safe harbour’, but the list of hard-core restrictions will be otherwise unchanged (this amendment will align the TTBER with the “verticals” block exemption, i.e. the rules for distribution and supply agreements).

The distinction between severable and non-severable improvements will be removed for the purpose of exclusive grant-backs, meaning that all exclusive grant-backs will fall outside of the new regime’s ‘safe harbour’.

Termination clauses that allow the licensor to terminate the agreement if the licensee challenges the validity of the licensed technology will no longer be protected by the new regime.

The Guidelines

Technology pools

A technology pool involves a package of technology from different contributors which is usually linked to an industry standard. The pooled technology may be licensed to contributing members or to other parties. Perhaps the most significant new area in the proposed regime is the expanded text relating to such pools in the Guidelines.

In principle, an agreement to set up a pool is not covered by the TTBER, since it does not involve a particular licensee producing contract products.

However, the Commission is suggesting the development of a more clear-cut and comprehensive ‘safe harbour’ for technology pools.

A number of criteria will determine the possible application of such a safe harbour and the exemptibility of a particular arrangement is likely to be a complex issue.

Key points are:

Will the pooled technologies be commercial substitutes?

Will they be essential, i.e. necessary for production of a particular product/process or for production in accordance with a particular standard?

Will the technology be available to all in a fair, reasonable, and non-discriminatory (FRAND) way?

Will those in the pool remain free to develop competing products and technology?

Settlement agreements

The potential anti-competitive effect of agreements to settle a dispute concerning technology has been a recent focus of the Commission’s enforcement activity, particularly in relation to the pharmaceutical sector. The suggested new Guidelines clarify, above all, three types of common provision which may be problematic in competition terms:

settlement agreements involving a “pay-for-delay” or other form of agreement concerning a payment in return for accepting a restriction;

certain forms of cross-licensing, above all where the parties have market power or accept significant restrictions; and

certain forms of non-challenge agreement, e.g. where there is a financial inducement.

The proposal intends to update the current TTBER to strengthen incentives for R&D, facilitate the diffusion of intellectual property and stimulate competition. Interested parties are invited to comment on the proposals by 17 May 2013.

This is a good opportunity for companies to make their voices and concerns heard about this important update of EU competition law, which will affect many commercial agreements in a number of sectors.